Business as usual? – Despite sanctions Portuguese companies are trading with Russia

 In Exports, International trade, News

Regardless of morality issues of right and wrong, 650 Portuguese companies are doing or have continued to do business with the Russian Federation despite sanctions and after the world marks the first anniversary of Russia’s invasion of Ukraine, but business as usual it certainly is not.

Nevertheless, trade between the two countries has plummeted with exports to Russia falling by 50% since February 24, 2022, when Russia invaded a sovereign country which it still argues doesn’t or really shouldn’t exist.

According to a report by Eco, despite EU sanctions, greater problems of transport and logistics, and difficulties in payments because Russia has been removed from the international payments system, as well as legal terms, there were 658 companies that were doing business with Russia in 2022 in some, albeit restricted, form or another.

Many of these, of course, were fulfilling legal contractual obligations for deals signed in 2021, or even before given the supply chain and logistics problems causes in 2020 and 2022 because of Covid-19 when international trade ground to a standstill. Others have retained a skeleton presence in Russia for the local market to protect jobs.

But the question remains. Is continued trade with Russia ethical, particularly when so many Ukrainian refugees have, thankfully, been given safe haven in Portugal after their lives were shattered and their businesses destroyed, learn that Portuguese firms continue to trade with Russia?

Making historical comparisons is always a dubious affair, but an perhaps interesting, if very different comparison, are the trade figures between Nazi Germany and the US, Europe and Great Britain after Hitler seized Czechoslovakia in 1938 before a general war between the United Kingdom and Germany was declared after 1 million German forces marched into Poland in September 1939.

Although trade between Germany and the US was only around US$300 million in the years leading up to World War II, largely because of the Depression and Germany’s focus on internal trade or autarky, by contrast, statistics from the US Department of Commerce’s Survey of Current Business series show that trade with the UK was significantly higher than the German trade throughout the 1930s and the indices for Germany in terms of dollar value of trade (both imports and exports) was typically lower than France’s level and competitive with that of Italy.

Also, Germany had pulled out of a trade agreement with the US in 1934 over protectionism issues as well as suspending payments on debts. The transatlantic trade between the US and Germany was decidedly anaemic by the invasion of Poland in 1939, and Britain’s naval supremacy destroyed what was left with an effective collapse of overseas international trading. Portugal, a neutral country, continued to do business with the Nazis throughout the years leading up to and during World War II.

So, the circumstances were different, international trade was less sophisticated in the 1930s, there were tariffs, trade wars, and a broken international finance system after Wall Street in 1929.

Germany relied on local central European trading partners like Hungary and Czechoslovakia (before 1938), and Russia after the Molotov-Ribbentrop Pact in 1939. Consumer trade between Germany and Western Europe was virtually negligible.

Returning to Portugal and Russia this decade, the 658 Portuguese companies that closed business with Russia was half the 1,185 companies that traded in 2021 before the invasion.

According to the Portuguese national statistics institute (INE), the number of national companies selling goods to Russia (330) was similar to those that purchased goods from Russian companies (329) with some companies like Sogrape (wine), Logoplaste (packaging) stopped trading after February 24 on moral grounds. But at least one Leiria-based molds company has continued trading since a large part of its exports involve Russia and depends on trade to ensure its survival and the many jobs that rely on it.

It is a difficult and thorny question to balance a company’s very existence and its responsibility to hundreds of employees and weigh this against the moral cost and the risk of a tarnished reputation.

The value of Portuguese exports to Russia in 2022 plummeted 50.5% in like-for-like terms to €88.2 million. Cork products are no longer among the most exported products to Russia after sales fell 62%, and are mostly confined to food products — the only out of 10 main product groups that actually saw sales increase to Russia.

The main exporter to Russia from Portugal in 2022 was Bosch Termotechnologia which specialises in hot water heaters (electric and gas), boilers and heating pumps. Russia represents 5% of the exports from the factory based in Aveiro. Another was CTH Porto (a cattle slaughter house) which vanished from the rankings of the 15 biggest exporters.

The export company Sedacor (JPS Cork) which has five factories producing three million wine bottle corks per day, has filled the gap left by Sogrape that has pulled out of the Russian market.

Other companies also pulled out of Russia such as Simoldes Aços (molds), Bondalti (Grupo José de Mello).

The companies that have continued trading with Russia are Stonimpar (natural stone), Louritex (farming tools), Ballamore (beverages), Proadec (plastics), Unicor (cork), Ponte da Barca e Arcos de Valdevez Cooperative Winery (wines), Casa Santos Lima (wines), Italagro (tomato-based products), Nestlé Portugal (foodstuffs). Fibromade (wood laminates and veneers), Cabopol Polymer Compounds (plastics), OLI (sanitary systems) and Arsopi (metallurgy).

The companies that import from Russia include Petrogal which continues to top the list of buyers from Russia, which has not revealed the value of imports and argues that the petrol products ordered from Russia had already been purchased and were in transit when the war broke out.

The Portuguese oil and gas company Galp was in the same situation and took the decision to halt all new sales from the date of the invasion.

The main companies that were importers from Russia in 2022 are: Petrogal (energy), Gas Natural Comercializadora S.A. (energy), SGL Composites (technical fibres), Riberalves (foodstuffs), Cargill (Animal feeds), Continental Mabor (tyres), Blue Chem (chemical products), Lugrade (fish), Rui Costa e Sousa & Irmão (foods), Indorama Ventures – Arlant (petrochemicals), RNM (chemical products), Polivouga (plastics), Companhia Nacional Comércio Bacalhau (foodstuffs), Oben Portugal (plastics) and Pascoal (foodstuffs).

According to ECO and based on official statistics from the Portuguese foreign investment agency AICEP and INE the start of the war in Ukraine interrupted the growth trend that had been seen from Russian investments in Portugal in recent years. The flow of FDI from Russia fell 20% to €44.9 million in 2022.

In December 2022 the stock was €348 million compared to just €15.6 million that Portugal had as an investor in Russia at the end of last year. Leading on from the steep losses that were seen in the four previous years in which divestment was always greater than gross investment, the flow of FDI from Portugal was negative by €9 million in 2022.

Photo: Michael Parulva – Unsplash